House passes bailout plan; most St. Louis area House members still vote no

This article first appeared in the St. Louis Beacon: October 3, 2008 -The economic bailout plan rejected by the House earlier this week passed today by a comfortable margin, 263-171, after changes were made in the Senate and a full court press was put on House members to reassure the markets and the American public.

But those efforts had little effect on House members from the St. Louis area. Those who voted no earlier -- Republicans Todd Akin and Kenny Hulshof and Democrat William Lacy Clay from Missouri and Democrat Jerry Costello and Republican John Shimkus from Illinois -- once again voted no.

"I voted no today for the same reason that I voted against this bill on Monday. The legislation does not address the root cause of this crisis: home foreclosures," said Clay. "Now they're asking taxpayers to give Wall Street and reckless speculators an $820 billion bailout.

"It's outrageous, it's fiscally irresponsible, and my conscience will not allow me to put that kind of burden on the taxpayers," he said.

Earlier in the week, Akin said his opposition was based on the fact that the people who would run the bailout program are the same people who were in charge when the financial crisis emerged. Costello had expressed concern about the haste with the bailout package was assembled and the neglect of careful consideration of alternatives.

Voting in favor of the proposal were Missouri Democrat Russ Carnahan, who had voted yes earlier, and Missouri Republican Jo Ann Emerson, who had also voted yes earlier.

A treatment with bad side effects

Some members of Congress who voted in favor of the economic bailout package that won approval in the House today characterized it as a "necessary evil." But Washington University economist Steven Fazzari suggests another analogy.

"Think of it as a treatment that has side effects you don't like," Fazzari said today. "If the treatment works, it's worth it.

"Nobody thinks this is a good thing to do. Nobody is happy. But it's an indication of how severe conditions are that they are moving forward with it."

Between the rejection by the House on Monday and its favorable vote today, changes were made in the package to make it more palatable -- and jitters on Wall Street escalated to the point that many voters who may not have liked the terms of the proposal liked what was happening to their investments even less.

That atmosphere, Fazzari says, created a climate where passage was almost inevitable.

Some of the changes, he added, were likely to be enacted anyway, like an increase in deposit insurance and changes in the alternative minimum tax.

"The biggest thing is that people who were against it so strongly were able to express their views and raise enough of a ruckus about it," he said. "Now there have been enough changes that people want to be on the safer side."

Now, he said, people will have to wait and gauge the effects.

"It's very difficult to assess success," Fazzari said. "If all of a sudden lending starts flowing, the economy turns around and bank failures end, people will be happy. But that's being unrealistically optimistic. If those things don't happen, it doesn't mean this thing wasn't worth doing."

It's also hard to put a price tag on a package that could actually end up adding to the treasury.

"No one knows what it will cost," Fazzari said. "A lot of people think of it as a $700 billion grab on taxes. What the government will do is issue bonds, so the private sector will be holding more government bonds and the government will be holding more private sector debt. If things get better, the government could actually turn a profit on this.

"However, I wouldn't say this is only successful if it turns a profit. There also could be non-trivial losses, but it could be far less than $700 billion, helping to stabilize the economy and increasing tax revenues, if it ends up making a recession less severe."

Any program will involve uncertainty, Fazzari noted, because of how all the economic factors involved affect each other.

"We don't have an opportunity to run controlled experiments on the American economy," he said. "A lot of people would like to say we know what to do, but we can't run things in a laboratory.

"We have to trust the judgments of people who have a large degree of historical knowledge. I trust Ben Bernanke's judgment. If we says we really need this, then I have to trust his judgment."